United States District Court, N.D. California
September 23, 2005.
JOHN REILLY, Plaintiff,
STATE FARM MUTUAL AUTOMOTIVE INSURANCE CO., Defendant.
The opinion of the court was delivered by: MARILYN PATEL, District Judge
MEMORANDUM AND ORDER
On July 13, 2005, defendant State Farm Mutual Automotive
Insurance Co. ("State Farm") filed a notice of removal from
Sonoma County Superior Court in this court pursuant to
28 U.S.C. sections 1446(b), 1441(b), and 1332. On August 2, 2005, plaintiff
John Reilly filed a motion for remand to superior court pursuant
to 28 U.S.C. section 1447(c) and for attorneys' fees associated
with defendant's attempt to remove. Plaintiff argues lack of
diversity jurisdiction, specifically that the amount in
controversy in this action falls below the $75,000 minimum
jurisdictional amount. Having considered the parties' arguments
and submissions, the court enters the following memorandum and
Plaintiff filed the present complaint in the Sonoma County
Superior Court, alleging that defendant wrongfully withheld
payment on a disability insurance policy issued to plaintiff.
Notice of Removal, Ex. A. Plaintiff claims that his back was injured in a
motor vehicle accident in July 2001 and that defendant has
improperly denied benefits based on a policy exclusion pertaining
to a previous, unrelated back condition. Id. Plaintiff seeks to
recover damages under two separate legal theories: breach of
contract for violating the terms of the policy, and breach of the
covenant of good faith and fair dealing, a state law tort
encompassing breaches of insurance contracts that are
"unreasonable and without proper foundation." Id.; see
Crisci v. Security Ins. Co., 66 Cal. 2d 425 (1967). For both
causes of action, plaintiff alleges damages "exceed[ing]
$25,000." Notice of Removal, Ex. A.
In the prayer for relief at the conclusion of the complaint,
plaintiff requests compensatory damages and prejudgment interest.
Id. Plaintiff also requests attorneys' fees, although the legal
basis for doing so is somewhat uncertain. See generally Cal.
Civ. Pro. Code § 1021 (codifying the "American Rule," that
parties bear their own attorneys' fees unless otherwise provided
by statute or agreement); contra Brandt v. Superior Court,
37 Cal. 3d 813, 817 (1985) (holding that "[w]hen an insurer's
tortious conduct reasonably compels the insured to retain an
attorney to obtain the benefits due under a policy, it follows
that the insurer should be held liable in a tort action for that
expense."); but see Pacific Group v. First State Ins. Co.,
841 F. Supp. 922, 945-46 (N.D. Cal. 1993) (Jensen, J.), rev'd on
other grounds, 70 F.3d 524 (9th Cir. 1995) (construing Brandt
narrowly out of respect for the American Rule).
On July 13, 2005, defendant removed the action to federal court
on the basis of diversity jurisdiction under
28 U.S.C. section 1332. Id. On August 2, 2005, plaintiff filed a motion to
remand, arguing that defendant has failed to demonstrate that the
amount in controversy exceeds $75,000. Mot. to Remand at 2.
An action is removable to a federal court only if it could have
been brought there originally. 28 U.S.C. § 1441(a). A district
court has diversity jurisdiction over any civil action between
citizens of different states so long as the amount in controversy exceeds
$75,000. 28 U.S.C. § 1332. If at any time before final judgment,
the court determines that it is without subject matter
jurisdiction, the action shall be remanded to state court.
28 U.S.C. § 1447(c).
The removal statute is strictly construed against removal, and
the court must reject federal jurisdiction if there is any doubt
as to whether removal was proper. Duncan v. Stuetzle,
76 F.3d 1480, 1485 (9th Cir. 1996); Boggs v. Lewis, 863 F.2d 662, 663
(9th Cir. 1988). The defendant bears the burden of proving the
propriety of removal. Gaus v. Miles, Inc., 980 F.2d 564, 566
(9th Cir. 1992). Where the amount of damages sought by a
plaintiff is unclear, defendant must prove facts supporting the
jurisdictional amount by a preponderance of the evidence.
Sanchez v. Monumental Life Ins. Co., 102 F.3d 398, 403 (9th
Cir. 1996); Gaus, 980 F.2d at 567 (citing McNutt v. General
Motors Acceptance Corp., 298 U.S. 178, 189 (1936));
28 U.S.C. § 1332(a). Thus, defendant must demonstrate that it is "more likely
than not" that the amount in controversy exceeds $75,000.
Sanchez, 102 F.3d at 404.
The district court determines whether defendant has met this
burden by first considering whether it is "facially apparent"
from the complaint that the jurisdictional amount has been
satisfied. See Singer v. State Farm Mut. Auto. Ins. Co.,
116 F.3d 373, 377 (9th Cir. 1997). If the complaint does not clearly
specify damages, the court may examine facts in the complaint and
evidence submitted by the parties. The court may also require the
parties to submit "summary-judgment-type evidence" relevant to
the amount in controversy. Allen v. R & H Oil & Gas Co.,
63 F.3d 1326, 1336 (5th Cir. 1995); Matheson v. Progressive
Specialty Ins. Co., 319 F.3d 1089, 1090 (9th Cir. 2003). The
jurisdictional minimum may be satisfied by claims for special and
general damages, attorneys' fees and punitive damages. See
Conrad Assoc. v. Hartford Accident & Indem. Co.,
994 F. Supp. 1196, 1198 (N.D. Cal. 1998) (Infante, M.J.). DISCUSSION
The parties do not dispute diversity of citizenship. Nor does
the complaint, on its face, state a claim for damages exceeding
$75,000. Plaintiff alleges for both causes of action only that
the damages exceed $25,000, the minimum required by California
courts of general jurisdiction. Accordingly, this motion turns on
whether defendant has proved, by presentation of sufficient
evidence or by argument based on the facts alleged in the
complaint, that the requisite amount in controversy exists.
I. The Effect of Plaintiff's Two Causes of Action
The parties disagree about whether the amount of money sought
in plaintiff's two causes of action may be added together for
purposes of establishing jurisdiction. Defendant characterizes
plaintiff's second cause of action, which sounds in tort, as
seeking "extra-contractual damages" above and beyond those
damages alleged in the first cause of action, but provides no
explanation or authority in support of the characterization. Mot.
to Remand at 4-5. Plaintiff, with a similar lack of cited
authority, argues that the two causes of action are "concurrent."
Brief in Opposition at 1. Although the court is unaware of any
authority addressing the precise question which the parties have
framed, three general points about the relationship between the
contract and tort claims are clear.
First, the only amount an insured may recover on a claim for
breach of a disability insurance contract is "the sum or sums
payable in the manner and at the times as provided in the
policy." Cal. Ins. Code § 10111.
Second, plaintiff can, in principle, recover more on his tort
claim than he can recover on his contract claim. Under a tort
theory of liability, an insured may recover "compensatory damages
for any actual loss," notwithstanding policy limits. Crisci,
66 Cal. 2d at 433; see also Gourley v. State Farm Mut. Auto. Ins.
Co., 53 Cal. 3d 121, 129 (1991) (insured may recover
compensation for emotional distress flowing from a breach of the
covenant of good faith and fair dealing); Egan v. Mutual of Omaha Ins. Co., 24 Cal. 3d 809, 824 n. 7 (1979),
cert. denied, 445 U.S. 912 (1980) (insured may recover future
policy benefits in a tort claim, in addition to past amounts owed
on the policy).
Third, plaintiff cannot obtain a double recover; whatever money
he is awarded on his contract claim cannot also be recovered on
his tort claim. Outside of the so-called "collateral source
rule," which permits an injured party to recover the full amount
of damages on a tort claim notwithstanding any previous
compensation "from a source wholly independent of the wrongdoer,"
damages recovered on a contract claim reduce the amount that is
recoverable in tort. See generally Anheuser-Busch, Inc., v.
Starley, 28 Cal. 2d 347, 349 (1946). Here, the contract and tort
claims are both against the insurer, and the collateral source
rule is inapplicable.
In combination, these points indicate that there is no basis
for simply combining the amounts sought in plaintiff's two causes
of action. Rather, if successful in this lawsuit plaintiff will
recover no less than the amount provided by the policy, and no
more than the total "actual loss" associated with defendant's
alleged breach. In order to establish jurisdiction, defendant
therefore has the burden of proving either that the amount
available under the policy exceeds $75,000, or that the actual
loss that plaintiff alleges more likely than not exceeds $75,000.
II. Amount Recoverable Under the Insurance Policy
Defendant argues that plaintiff's contract claim puts
$54,999.33 in controversy, consisting of $43,596.73 in monthly
disability income benefits, $4,802.60 in waiver of premium
benefits, and $6,600.00 in rehabilitation expense benefits.
Plaintiff does not dispute defendant's calculation. The court
therefore finds that plaintiff reasonably seeks at least
$54,999.33 in damages for breach of the insurance contract. III. Amount Recoverable Based on a Breach of the Covenant of
Good Faith and Fair Dealing
With respect to plaintiff's tort claim, defendant provides no
facts or analysis as to the amount that plaintiff might
reasonably recover. Instead, defendant simply asserts that
plaintiff seeks at least $25,000 in "extra-contractual" damages,
and that this amount, when added to the amount recoverable under
plaintiff's contract claim, exceeds the jurisdictional minimum.
As already discussed, this method of calculating the total amount
in controversy is incorrect.
The court is skeptical of plaintiff's claim that the amount in
controversy in this lawsuit is less than $75,000. The contract
claim alone is worth almost $55,000, and under the authorities
listed above plaintiff may seek additional damages for emotional
distress, accelerated payment of future policy benefits, and
reimbursement of any attorneys' fees related to obtaining the
improperly withheld benefits. Any of these additional amounts
individually might be sufficient to close the gap; considering
them in combination, it seems highly unlikely that plaintiff will
seek less than the jurisdictional amount. It is defendant,
however, who has the burden of providing evidence that the total
amount in controversy exceeds $75,000. See Gaus,
980 F.2d at 566. Defendant has failed to do so here, and the court is
compelled to remand this action to state court.
IV. Attorneys' Fees
Based on the court's skepticism that plaintiff seeks less than
the jurisdictional amount, an award of attorneys' fees in this
case would not be just. See 28 U.S.C. § 1447(c). Plaintiff's
motion for attorneys' fees is therefore denied. CONCLUSION
For the above reasons the court hereby GRANTS plaintiff's
motion to remand the pending action to Sonoma County Superior
Court and DENIES plaintiff's motion for attorneys' fees. The
Clerk of Court shall transmit forthwith a certified copy of this
order to the Clerk of the Superior Court for Sonoma County.
The Clerk of Court shall close this file.
IT IS SO ORDERED.
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